Report Q3 218 Export Credit Norway
Q3 218 Stable application inflow In the third quarter of the year, Export Credit Norway received 49 financing applications representing a total application volume of NOK 16.4 billion. The number of applications is on a par with the corresponding quarter of last year, while the application volume is somewhat lower. In 218 as a whole, the company has registered a sharp increase in application numbers, not least following the launch of the new ship financing solution. Changes in application profile The reorientation of the ocean industries sector is also reflected in Export Credit Norway s application inflow, with the proportion of oil and gas and offshore shippingrelated applications falling markedly over the past onetwo years. Improved access to capital for some Capital access appears to have improved considerably in some industries and for certain customers, as indicated by several large early loan redemptions and customer feedback. Customers are nevertheless continuing to apply for financing from Export Credit Norway for new projects, as a firm financing offer can be a decisive factor in winning a contract. Export Credit Norway expects only some of the applications received in 218 to result in new loans. In the company s experience, the number of actual disbursements is influenced by the competitive situation, exporters success in the market and the availability of alternative sources of capital. The trade conflict between the USA and China continues to create waves, but to date Export Credit Norway has seen few concrete examples of customers losing contracts as a result of it. Marketing activity Export Credit Norway cooperates extensively with the other policy instruments, including Innovation Norway and GIEK. Several new measures were developed in the third quarter to make it easier to refer customers to the right policy instrument. Export Credit Norway also participated in and hosted several export financing seminars in Q3, including in Kristiansand, Stavanger and Oslo. Finally, company representatives attended the Global Wind Summit and the SMM Hamburg, ONS 218, Rio Oil & Gas and Nor-Fishing trade fairs. 211 Administered loans 41 Different jurisdictions in which Export Credit Norway has project and contractual experience 2
Q3 218 Applications, portfolio and probability-adjusted order book Applications Export Credit Norway received 49 financing applications in Q3 218, representing a total application volume of NOK 16.4 billion. Compared to the two previous quarters, this represents a decline in the number of applications which is largely attributable to seasonal fluctuations, with low activity levels in the summer. The company has received 223 applications thus far in 218. In terms of value (NOK 152. billion), the application inflow already exceeds last year s full-year total. The application profile generally reflects the reorientation process that is ongoing in the ocean industries sector, and has the following distribution in numerical terms: offshore support vessels (8%); fisheries and aquaculture (19%); oil and gas-related projects (21%); other ship types (25%) and industry and renewable energy (28%). In the third quarter, the company registered an increase in the number of applications concening ship upgrades through the installation of exhaust scrubbers and ballast-water treatment systems. Both categories of applications are being driven by new international emissions requirements. Total number of applications Q3 218 Q3 217 YTD 218 217 216 Loan applications received (number) 49 45 223 241 278 Value of loan applications (NOK billion) 16.4 22.3 152. 124.4 29.1 New loan agreements signed New loan agreements signed in the third quarter totalled NOK 36.8 million, compared to NOK 2.3 billion in Q3 217. The number of signed loan agreements, and their value, fluctuates from quarter to quarter. Large individual contracts boosted the volume in the third quarter of 217, and for last year as a whole. In 218, Export Credit Norway expects the total number of signed agreements to be significantly lower than in 217 due to delays in ongoing lending processes, some of which have already been deferred until 219. Signed agreements* Q3 218 Q3 217 YTD 218 217 216 Value (NOK billion).37 2.3 2.6 9.8 11.3 Probability-adjusted order book Export Credit Norway calculates a best estimate of future loan disbursements based on the loan applications it has received. As at 3 September 218, the company s probability-adjusted order book totalled NOK 18.1 billion, NOK 3.3 billion higher than at the end of Q3 217. Segment information is provided in the remainder of the report. Application volume by quarter (NOK billion) 8 7 73,4 6 62,2 5 4 3 2 22,3 24,2 16,4 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 2 18 16 14 12 8 6 4 2 Probability-adjusted order book by quarter (NOK billion) 14,8 16,7 16,3 16,7 18,1 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 * Signed agreements denominated in other currencies have been converted into NOK based on the exchange rate at the close of business at month-end. Totals in tables and figures may differ due to rounding. This applies throughout the report. The portfollio figures for 218 include applications linked to the new ship financing solution. 3
Q3 218 New disbursements In the third quarter, Export Credit Norway disbursed NOK 263 million in new loans, compared to NOK 97 million in Q3 217. The disbursements made in the third quarter went to projects including support vessels for offshore wind farms and equipment for aquaculture facilities in Ireland. Several large disbursements have been deferred until 219, and the company therefore expects to disburse around NOK 2.5 billion in loans in 218. Disbursements over time (NOK million) 2 15 1 821 884 5 97 322 263 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Lending balance by quarter (NOK billion) Lending balance The lending balance amounted to NOK 63.7 billion as at 3 September 218, compared to NOK 69.2 billion at the end of the corresponding period last year. The decline in the company s lending balance is primarily due to large early loan redemptions in individual projects, foreign exchange developments and a reduced number of new disbursements in 217 and 218. As at 3 September 218, industry and renewable energy accounted for 4% of the company s lending balance, up from 3% the previous quarter. The remaining 96% of loans relate to ocean industries. The industry distribution of the lending balance has remained relatively stable over time. 8 7 6 69,2 69,4 65,9 68,1 63,7 5 4 3 2 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Guarantors as at 3 September 218 (%) 14% 14% GIEK Norwegian banks Guarantors As at 3 September 218, 72% of Export Credit Norway s lending portfolio was guaranteed by GIEK. The remaining 28% of the portfolio was guaranteed by Norwegian banks (14%) and foreign banks (14%). 72% Foreign banks 4
Developments, activities and the portfolio Ocean industries The ocean industries portfolio comprises transactions involving oil and gas equipment, offshore support vessels and ship equipment, passenger vessels, merchant shipping and fisheries and aquaculture. Applications In the third quarter, Export Credit Norway received 35 applications* representing a combined application volume of NOK 12.6 billion linked to financing for ocean industries. The company has registered increasing interest in financing for equipment and systems to reduce sulphur levels in exhaust emissions and ballast-water treatment systems. Export Credit Norway received six applications related to such systems in the third quarter, compared to a total of nine applications in the first and second quarters of the year. Portfolio The ocean industries category accounted for 96% of Export Credit Norway s lending portfolio at quarter-end. The diagram on the next page provides a further breakdown of the portfolio by sub-segment. Financing for offshore ships and oil and gas equipment currently dominates the lending volume. NOK 24.2 million in loans was disbursed to ocean industries in the third quarter. Number Utvikling of applications antall søknader by industry per bransje and per quarter kvartal (NOK billion) Application volume by industry and quarter (NOK billion) 7 65 6 55 5 45 4 35 3 25 2 15 5 12 24 16 2 9 6 17 8 17 2 22 17 3 5 7 2 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 18 18 8 6 55 5 45 4 35 3 25 2 15 5 2,3 7,7 4,6 3,2,7 2, 8,4 7, 2,8 18,3 1,9 32,1 3,5 3,8 2,8 23,9 2,2 4,7 2,6 3,1 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Fisheries and aquaculture Passenger vessels and merchant shipping Fisheries and aquaculture Passenger vessels and merchant shipping Lending balance by segment and quarter (NOK billion) Disbursements by segment and quarter (NOK million) 8 7 6 5 4 3,8 1, 1,7 1,8 45, 44,2 1, 1,2 1,7 1,2 42,2 42,4 1,2 1,2 41,4 14 12 8 6 252 1 28 2 4 2,8 2,7 19,2 21,2 17,7 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Fisheries and aquaculture Passenger vessels and merchant shipping 2 246 31 69 59 64 14 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Fisheries and aquaculture Passenger vessels and merchant shipping 13 11 * Two of the applications received in the third quarter were linked to the new ship financing solution. 5
Developments, activities and the portfolio Ocean industries cont. Market developments Order inflow Norwegian shipyards In total, Norwegian shipyards secured 15 contracts valued at NOK.6 billion* in the third quarter of 218. Order inflow continues to vary greatly from yard to yard. As in the preceding quarter, the concluded contracts related to vessels such as fishing boats, service vessels for offshore wind farms, cruise boats and cable-laying units. The cruise market, which accounted for almost two-thirds of the order inflow volume, remains important for the Norwegian maritime industry. Offshore support vessels The market for offshore support vessels remains challenging. Despite the fact that oil prices have been high for a period, there is still a large over-supply of ships in the market. Norwegian shipyards have concluded few new offshore/supply-related contracts since June 215. Passenger vessels and merchant shipping Many shipping companies are currently deciding to invest in the installation of environmental technologies aboard their ships. These decisions are being made in response to new international requirements, which are providing opportunities for Norwegian exporters of such equipment. Export Credit Norway s order book for ocean industries is currently dominated by smaller cruise ships, which accounted for approximately 46% of the order book volume as at 3 September 218. Domestic ship financing solution The new ship financing solution launched by the Government in the autumn of 217 is fully operational. The solution allows Export Credit Norway to finance vessels purchased by Norwegian shipping companies and constructed at yards in Norway, even when these are not destined for offshore operation or use in foreign trade. As at the end of Q3 218, a total of 22 applications valued at NOK 6.8 billion had been received. Two of these were received in the third quarter. Fisheries and aquaculture Export Credit Norway has observed relatively strong activity levels in the fisheries and aquaculture segments, driven particularly by demand for fishing boats and wellboats. Going forward, the company expects to see more Norwegian suppliers achieve growth in this segment. The new ship financing solution is expected to generate additional enquiries as awareness of the solution increases further among stakeholders in the fisheries, aquaculture and well-boat segments. Oil and gas equipment Despite a seasonal decline, Export Credit Norway has registered improved activity levels concerning equipment deliveries for the oil and gas productiointernational interest in upstream activity in the oil and gas industry is boosting demand for Norwegian deliveries linked to subsea n sector. Increasing installations, as well as for modules and equipment for use in different plattform and floating solutions. Ocean industries lending balance by sub-segment as at 3 September 218 (%) NOK 61.5 billion (96% of the total) 66,1 % 28,8 % 28.8% Oil and gas equipment 66.1% Offshore support vessels 1.3% Equipment for offshore support vessels 1.% Passenger vessels and merchant shipping.9% Equipment for passenger vessels and merchant shipping * Source: Norwegian shipyards/nssm.no 6
Developments, activities and the portfolio Industry and renewable energy Applications In the third quarter, Export Credit Norway received 14 applications linked to industry and renewable energy, representing a total application volume of NOK 3.8 billion. This figure is on a par with the total for Q3 217. The subject matter of the received applications varies greatly in terms of industry sectors and geography. Portfolio In volume terms, the industry and renewable energy segment accounted for 4% of Export Credit Norway s total lending portfolio at quarter-end. The portfolio is complex and diverse, and unlike the rest of the lending portfolio is dominated by small and medium-sized loans. The diagram at the bottom right of the page provides a further breakdown of the portfolio by sub-segment. Financing for equipment related to offshore wind energy, solar energy, the defence industry and water and sanitation makes up the majority of the lending volume. In the third quarter of 218, the company disbursed NOK 238 million in loans related to industry and renewable energy projects. Number of applications by quarter Application volume by quarter (NOK billion) 4 3 2 13 4 1 3 2 12 17 19 13 12 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 3 25 2 15 5 4,9,3 23,3,1,2 1,3 2,9 7,3 7,9 2,5 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Industry Renewable energy Industry Renewable energy Disbursements by quarter (NOK million) Lending balance by quarter (NOK billion) 8 2,5 6 4 2 579 28 14 362 14 73 99 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 2, 1,5 1,,5,,8,9,7,8,7,9 1, 1,3 1,4,4 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Industry Renewable energy Industry Renewable energy Market developments Mainland industry segments have generally maintained export growth, driven not least by an ongoing low krone exchange rate. This trend is expected to continue, albeit with some variation among the many industry segments. Lending balance by sub-segment as at 3 September 218 (%) 18% 3%2%2% Wind energy 7% 23% Solar energy NOK 2.3 billion (4% of the total) 29% 16% Defence technology Water and sanitation equipment Energy and power industry ICT 7
Small and medium-sized enterprises (SMEs) 49% of applications from SMEs More than 99% of all Norwegian businesses and more than 9% of Norwegian exporters are SMEs. Helping these businesses to expand abroad is a high priority in the company s marketing strategy. Moreover, most of the exporters who ask Export Credit Norway for sales support in export-focused customer initiatives, or who request general advice on the financing of export activities, are SMEs. Applications In the third quarter of 218, some 49% of the 49 financing applications received by the company came from SME exporters. In total, SMEs accounted for 24.5% of the third-quarter application volume. Portfolio The customer segments in the SME category are fragmented, and developmental trends are less clear. Long-term contractual financing entails long-term financing for the export customer (the purchaser), and only end customers can qualify for long-term financing. In many cases, SMEs account for a large proportion of the sub-deliveries made in a larger project financed by Export Credit Norway, and therefore benefit from the long-term export financing arrangement in their capacity as sub-contractors. To reduce transactional complexity for SMEs, Export Credit Norway and GIEK have made considerable investments in simplification and ongoing procedural improvement processes in recent years. The current SME portfolio is diverse, and includes suppliers operating in the ICT, maritime and aquaculture industries as well other suppliers of capital goods and services. SMEs accounted for 2.5% of the total lending portfolio as at 3 September 218. 9 8 7 6 5 4 3 2 SMB share (number) of applications by quarter Ocean industries 45 13 32 25 15 Industry and renewable energy 69 21 48 28 12 16 99 32 67 ApplicationsSME share ApplicationsSME share ApplicationsSME share ApplicationsSME share ApplicationsSME share Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 47 28 19 75 16 59 3 2 49 14 35 24 9 15 SMB share of application volume by quarter (NOK billion) 7, 6, 5, 4, Ocean industries 3, 22,3 2, 3,1, 19,2 4,5 2,7, 1,8 Application volume SME share Industry and renewable energy 24,2 7,4 16,8 3,7,5 Application volume SME share 3,2 73,5 18,3 55,2 11,4 9,2 Application volume SME share 2,2 62,2 28,2 34, 3,8 1,3 2,5 Application volume SME share 16,4 3,8 12,6 4, 1,9 2,1 Application volume SME share Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 * Export Credit Norway uses the EU definition of SMEs: undertakings with fewer than 25 employees and less than EUR 5 million in turnover. 8
Environmental technology Strong inflow of environmental technology applications Applications In the third quarter, Export Credit Norway received financing applications linked to environmental technology and renewable energy. These totalled NOK 2,3 billion and accounted for 13.9% of the total third-quarter application volume. In terms of both application numbers and value, application growth has been higher thus far in 218 than in 217. Growth has been mainly driven by applications related to hydropower and solar energy, as well as equipment for scrubbing exhaust emissions on large passenger and merchant shipping vessels. Applications related to environmental technology and renewable energy by quarter (NOK million/number) NOK million Number 11 32 22 9 8 7 6 5 4 3 2 1 1 518 5 12 4 885 224 257 119 118 151 37 15 251 2 9 1 9 1 252 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 25 2 18 16 14 12 8 6 4 2 Environmental technology for the maritime sector Other environmental technology Renewable energy Total number of applications Segment distribution Environmental technology for the maritime sector Environmental technology for the oil and gas industry Environmental technology for offshore support vessels Environmental technology for passenger vessels and merchant shipping Environmental technology for fishing boats and wellboats Renewable energy Hydropower Wind energy Solar energy Other renewable energy 9
Exports from Norway Export destinations From Norway According to a survey conducted by Menon*, although Norway s exporters are spread across the entire country, three of Norway s five largest exporting counties are found in western Norway. Exports financed by Export Credit Norway by county (NOK) Exports from counties on Norway s west coast also make up a significant proportion of Export Credit Norway s lending portfolio**. Møre og Romsdal is clearly the largest exporting county in the portfolio, followed by Vest-Agder. Together, the two counties accounted for some 8% of the company s lending balance as at the end of Q3 218. NOK -1 billion NOK 1-5 billion NOK -2 billion NOK 3-5 billion To the world Although Export Credit Norway provides financing for projects in numerous countries, the majority of transactions involve exports to Europe. As at 3 September 218, 8% of the lending balance related to exports to OECD countries, and the remaining 2% to exports to non- OECD countries. This distribution has been relatively stable in recent quarters. In the SME part of the portfolio, the proportion of non-oecd export destinations is somewhat higher, and increasing, with a higher proportion of disbursements to non-oecd countries in the two previous quarters. Distribution of project countries in the lending balance as at 3 September 218 (%) 2% 8% OECD countries Non-OECD countries Exports by region, project countries as at 3 September 218 (%) Distribution of SME project countries in the lending balance as at 3 September 218 (%) 5 % 11 % 3 % 4 % Asia Europe North America South and Central America 32 % OECD countries Non-OECD countries 77 % Africa 68 % * Menon publication no. 9/215: Exports from Norwegian regions. ** More than 6% of the lending balance as at 3 September 218.
KEY PORTFOLIO FIGURES Q3 218 Q3 217 YTD 218 217 216 Lending balance* (NOK million) 63,727 69,212 63,727 69,359 76,55 CIRR 39,554 42,977 39,554 43,53 46,749 Market loans 24,173 26,235 24,173 25,856 29,756 Disbursements (new loans, NOK million) 263 97 2,46 3,418,76 CIRR 6 28 831 2,677 6,138 Market loans 157 69 1,575 741 3,938 Probability-adjusted order book (NOK million) 18,115 14,775 18,115 16,674 17,198 Ocean industries 17,776 12,96 17,776 15,33 15,126 Industry and renewable energy 339 1,869 339 1,334 2,72 Gross interest income (NOK million) 396 396 1,235 1,744 1,711 Instalments (NOK million) 4,52 1,38 7,35 7,174 8,922 Early loan redemptions (NOK million) 3,453 127 3,514 1,174 1,981 Administrative costs.4%.4%.12%.15%.14% Applications Number (total and by segment) 49 45 223 241 278 Oil and gas equipment 7 46 42 8 Offshore support vessels 3 2 18 27 22 Passenger vessels and merchant shipping 17 8 55 47 4 Fisheries and aquaculture 8 12 42 5 36 Industry and renewable energy 14 13 62 75 Volume (total and by segment, NOK million) 16,4 22,284 151,962 124,418 29,143 Oil and gas equipment 3,99 8,423 59,124 67,78 159,951 Offshore support vessels 2,588 7 7,316 8,3 4,529 Passenger vessels and merchant shipping 4,691 7,732 26,856 18,24 25,98 Fisheries and aquaculture 2,229 2,37 8,467,445 4,74 Industry and renewable energy 3,793 3,112 5,199 19,886 14,825 New contracts (NOK billion)**.37 2.3 2.6 9.8 11.3 Guarantors (% of portfolio) GIEK 72% 73% 72% 73% 74% Norwegian banks 14% 14% 14% 14% 13% Foreign banks 14% 13% 14% 13% 12% * Balance at quarter-end. ** Signed agreements denominated in other currencies have been converted into NOK based on the exchange rate at the close of business at monthend. Totals in tables and figures may differ due to rounding. All figures in NOK are based on the exchange rate at the close of business at month-end, subject to two exceptions: interest income is stated according to the actual exchange rate and instalments are stated according to the historical exchange rate. The industry and segment classification of the company s lending portfolio was revised in Q1 218. Figures for 217 and 218 reflect the new classification, but earlier figures are not directly comparable. The application figures for 218 include applications related to the new ship financing solution. 11
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